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Weak job growth in May signals cooling economy
LAST UPDATE: Sunday, 4 Jun 2006 - 11:16:46 AM
 
May's nonfarm payroll gain was the weakest since hurricane-depressed October and marked the third straight month in which employment growth had slowed.

The unemployment rate, however, was a bright spot. It unexpectedly slipped to 4.6 percent -- the lowest since July 2001 -- from 4.7 percent in April.

Overall, however, the tone of the report was weak and eased concerns the U.S. economy, which grew at a sizzling 5.3 percent annual rate in the first quarter, would continue to move forward so strongly as to fuel inflation.

"This conveys further evidence that a slowdown is well in hand," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

Prices for U.S. government bonds surged and the dollar slumped, as traders rethought the direction of interest rates. Stocks initially rose, but later slipped on concerns over softer growth. In early afternoon, the blue chip Dow Jones industrial average (^DJI - news) was off about 47 points at 11,213.

President George W. Bush cited the drop in the jobless rate, the now 33 straight months of employment growth and the creation of 5.3 million jobs over that period as signs of the economy's vigor.

"The American economy is powerful. It is productive. And it is prosperous. And we intend to keep it that way," Bush said at a swearing-in ceremony for his new budget director.

But Democrats said the report was more bad news for American workers. "Job creation is slowing in what was already a disappointing economic recovery for many American families," said Rhode Island Sen. Jack Reed (news, bio, voting record), the top Democrat on the congressional Joint Economic Committee.

FED PAUSE AHEAD?

A number of details lent a soft tenor to the report.

Average hourly earnings edged up just 1 cent, or 0.1 percent, the length of the workweek dropped back from a 3-1/2 year high struck in April, and job growth for the prior two months was revised down by a net 37,000.

Economists had been expecting a solid gain of about 175,000 jobs in May, although some had trimmed forecasts this week, and earnings had been expected to move up a stiffer 0.3 percent.

The slim gain in pay pulled down the 12-month rise in earnings to 3.7 percent from April's 4-1/2 year high of 3.8 percent, helping sooth financial markets that have been jittery over signs of mounting inflation.

Ahead of the report, interest rate futures markets saw a 68 percent chance the U.S. Federal Reserve would nudge overnight borrowing costs up by a quarter-percentage point to 5.25 percent at its next meeting on June 28-29. But chances dropped to about 42 percent after the data were released.

"The message for the Federal Reserve should be clear; the checkered flag is waving and the long interest-rate hiking race is over," said David Huether, chief economist for the National Association of Manufacturers.

Fed officials, who have raised interest rates in 16 straight steps dating to June 2004, have looked for economic growth to throttle back, but have also been on high alert for inflation amid signs of bubbling price pressures.

A Reuters poll of 22 top Wall Street firms that deal directly with the Fed in the markets found that 12 believed credit costs have peaked. Another two expect the Fed to pause this month, but resume raising interest rates later.

The report showed retail industry payrolls shrank by 27,000 jobs last month, while 14,000 factory jobs were cut. Construction payrolls edged up by a meager 1,000 workers.

The length of the workweek slipped back to 33.8 hours from 33.9 hours in April, helping to pull down an index of overall hours worked for the first time since August. Some economists said that was a sign growth was slowing sharply.


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